Driverless cars will transport people through the streets of Milton Keynes from 2015, in the biggest test yet of the futuristic vehicles in Britain.

Vince Cable, the business secretary, announced that 20 of the vehicles will travel on special pathways separated from pedestrians around the Buckinghamshire town's shopping centre.

By mid-2017 it is planned that 100 fully autonomous cars will be in operation, sharing pathways with pedestrians and equipped with sensors to avoid collisions.

The driverless pods, which can carry two people each, will be able to travel at a maximum speed of 12mph and come with screen that allows passengers to check email and browse the internet while being ferried to their destination.

"By 2050, very few – if any – new cars will be powered solely by the traditional internal combustion engines, so it is important that the UK car industry is at the cutting edge of low-carbon technologies," Cable said.

"Driverless cars are another invention that has the potential to generate the kind of high-skilled jobs we want Britain to be famous for, as well as cutting congestion and pollution and improving road safety."

Cable unveiled the £1.5m project on a visit to Northampton on Thursday, where he also announced a £75m fund to produce and test low-carbon engines.

While the exact specification of the pods is yet to be finalised, a prototype image of the vehicle has three wheels and a see-through lid that flips up for passengers to step in or out. Each journey could cost £2, although that will be subject to a study next year.

Initially the driverless cars will ferry passengers from the town's rail station to its shopping centre just over a mile away – currently a 20-minute uphill walk.

One person close to the project said the exact make and model of the cars was yet to be decided, but that one option under consideration was the EN-V by General Motors, dubbed the "bubble car", which was first unveiled in 2010.

Most big carmakers – including Nissan, Toyota and Volvo – are already developing self-driving technology and incorporating it into models on Britain's roads.

Volvo claimed a first in August when it tested a car with "steer assist", which took control of the brakes, engine and steering from the driver at the press of two buttons.

In California, Google has claimed that its driverless cars have travelled 400,000 miles without a crash.

But it is not the technology behind autonomous vehicles that is problematic, according to Professor Martin Spring of Lancaster University, it is how they will fit into the existing road system.

"This is an important experiment to have, but we could miss an opportunity by trying to make it fit into a system designed for humans," he said, describing insurance claims as one area of uncertainty for self-driving cars.

Geoff Snelson, strategy director at Milton Keynes council, said there was some trepidation about the plans – "some have said 'Crikey, it'll never be safe'" – but that it added to the town's reputation as a place to experiment with novel technologies.

"Locally the immediate reaction has been overwhelmingly interest and excitement," he said.

"We've had questions about how it will work in practice but the initial response is people are very, very excited. We're hoping people will be queuing up to use the cars and will see it as a point of interest to come visit Milton Keynes."